< PreviousSpecialty Coverage 38BEST’S REVIEW • NOVEMBER 2022 elements of this risk identification, mitigation and transfer process. They’re not always buying insurance. They’re oftentimes self assuming the risk. That involves a wide variety of players as well, including brokers, carriers, risk managers and capital providers that aren’t normally in this industry. Power: I think about the insurance industry as very much being a derived industry—derived, meaning that our relevance is derived from the liability landscape that our customers face. I’d argue that changes in that liability landscape are accelerating in terms of business models, new industries. I think, really, if you think about Lloyd’s, you think about the excess and surplus lines industry broadly here in the United States, I think that sector is the best equipped with this freedom of written form to respond to these changes that seemingly are confronting our clients in real time. What distinguishes the good ideas from the bad ideas? Power: In the course of my career, I’ve seen a number of well-intentioned, really good ideas that have been brought to market, in terms of product or approach, that ultimately weren’t commercialized. There’s got to be some level of acceptance and a willingness to purchase the coverage. That’s something that underwriters need to think about as they invest time and capital in launching new products. Strommen: There are no bad ideas. It doesn’t mean that every idea is going to translate into a marketable insurance product. How is the demand for new coverages being demonstrated and developed? Watkins: I’d say it’s been demonstrated every day, again, by the capital providers as well as intermediaries that are looking for ways to enhance their business. Because if there were no losses—I learned that early in my career as an underwriter that if there were no losses, we’d be doing something else. There always will be losses. Strommen: For those of us who specialize in a particular industry segment, staying in close touch with that segment and what is happening in your segment is one of the things that drives this whole area. If we don’t understand the industries that we serve, we are not going to be able to percolate ideas. Power: Case in point: COVID hits, we are in the travel business. … That business dried up for a period of time post-COVID as cruise lines halted, etc. That team pivoted very quickly and developed a program with the government of the Bahamas because the Bahamas were concerned about their ability to maintain a healthy tourism trade. What kind of background expertise do you need to have that creates or helps the industry develop new risk opportunities? Strommen: I think that this also goes to the overall efforts of our industry, and certainly others to diversify their staff and employee base in terms of their own personal backgrounds, because we all bring our personal experience to the table in these conversations. It’s our professional experience, but it’s also our personal experience where we come from, how that shaped us. Watkins: That’s the reason our industry is so focused on getting even high school students now interested in what we do and certainly the universities that have RMI [risk management and insurance] programs—there are over 75 in the country, last time I looked. Can we specifically identify the risk opportunities? The new ones, the ones that are emerging, the ones that have emerged in recent years. Watkins: Geopolitical conflict was toward Matthew Power One80 Intermediaries39BEST’S REVIEW • NOVEMBER 2022 the bottom as an emerging risk threat before the war in Ukraine. I would argue that’s probably one or two right now, especially as other parts of the world come into view following the Ukraine invasion. Climate change, and perhaps the inability of mankind to adapt to it, has always been a major concern. You mentioned health care issues. Ten years ago, Lloyd’s published a thought leadership report on what happens in the next pandemic. It was the least downloaded of our thought leadership reports. No one thought about it. … cyber interestingly is not in that top 10 list. I’m not sure if it’s become an embedded risk on everybody’s mind or perhaps has been overshadowed by the many other threats facing the world today. Strommen: Take the pandemic, for example: It hit the hospitality industry hard and in particular ways that it didn’t necessarily hit other industries. It’s unclear how much restaurants or hotels had it on their radar that a pandemic might hit and shut them down for months. Some were probably more aware of that potential than others. I would wager that most of them hadn’t thought that that could be an outcome from a pandemic. A part of that was because of the particular type of pandemic and how COVID is spread. The airborne spread clearly had an impact on any business that relied on people being together in person much more than it did on other businesses. Power: People that sit around and think about what the future state of our economy looks like, in terms of what’s out there in 25 years. You start to hear about industries like robotics, photonics, pharma, biotech. All of these industries are evolving. With each and every one of them comes a changing and emerging liability landscape. The challenge for our industry is that the vast majority of insurers today are very well equipped to handle the risks associated with those old economy business models. Very few have the requisite product and talent to understand emerging risk. This, again, is the great benefit that Lloyd’s and the U.S. E&S market bring to bear on emerging risk. Deloitte said that insurers should consider adopting strategic risk management as a holistic framework to not only help them manage the potential downside of disruptive risks, but also perhaps achieve faster growth by better preparing them to capitalize on the resulting opportunities. Would you agree? Power: At the end, it goes back to this notion of innovation being a deliberate process on the part of the underwriting community. It’s not a part-time job. We all contribute to it, as Hank and Heidi have alluded, but to have a very deliberate process in place, incubators in place, there’s not enough of it. Where you see it done well, it leads to a lot of success, development of new approaches, and changes to our industry. I agree with the Deloitte analysis that the approach has to be delivered. You have to have dedicated resources that are constantly thinking about the evolution of business models for our clients, as well as some of the individual risk factors that we talk about, whether it is climate change, whether it’s geopolitical risk, and so many others. Strommen: The dedicated resources are key here. I believe that it’s probably a bit of an internal battle and a lot of organizations are budgeting for those resources. Having it makes sense and making the case within that organization that it’s going to pay off is a smart deployment of those resources. BR AM Best TV Visit www.bestreview.com to watch the full lineup of programs in Succeeding in the New Age of Specialty Coverage. Hank Watkins Lloyd’s AmericasSpecialty Coverage 40BEST’S REVIEW • NOVEMBER 2022 With Specialization Comes Responsibility A panel of insurance experts says specialists are held to higher professional standards—and consumers expect to get what they pay for. by John Weber E merging risks and a changing world are forcing agents and brokers to change with the times as well. And in recent years, there has been a trend toward specialization, insurance industry experts say. But it’s also added a whole new level of responsibility that professionals must provide for their clients. Jeremy Hitzig, co-founder, Starfish Specialty Insurance; Martin Ween, senior counsel, Wilson Elser; Joel Cavaness, president, Risk Placement Services; and Christopher Mee, vice president, Aon’s Cyber Solutions, took part in an AM Best panel entitled “With Specialization Comes Responsibility.” Following is an edited transcript of their discussion. What’s the complexity of a specialist? Mee: I really find the complexity of being a specialist starts with the complexity of the covers that you’re placing itself. I’ll use cyber insurance as an example, because that is my area of specialization. When we look at that line of coverage, there are eight to 10 different insuring agreements that can address a breadth of different losses arising out of cyber events. Cavaness: You also have to understand and hopefully know in the marketplace, when you’re placing the insurance, who’s the best insurance company to place that particular risk with. It might be because we’re specialized in claims handling. It might be loss control or in cyber, obviously, security. It’s not just knowing the coverage that exists, but knowing the best partner to place that particular risk with, so just taking it one step beyond where you’re at. It’s a big marketplace out there. Some carriers certainly are better than others. Hitzig: It seems like every other day a new market enters a different specialty area adding to the complexity of staying current with underwriting appetites, pricing and coverage. Is there an increased liability in being a specialist? Ween: The short answer is yes. It comes down to the different standards of care that are applied to agents and brokers, and, specifically, specialists. John Weber is a senior associate editor. He can be reached at john.weber@ambest.com. “It’s not just knowing the coverage that exists, but knowing the best partner to place that particular risk with, so just taking it one step beyond where you’re at. It’s a big marketplace out there. Some carriers certainly are better than others.” Joel Cavaness Risk Placement Services41BEST’S REVIEW • NOVEMBER 2022 On the one hand, most states impose what’s called an “order taker” standard of care on agents and brokers, which means that they have to only follow the specific requests and instructions of their clients as to what coverages they’re to procure. It’s a reasonable standard of care—to the extent, of course, the agent or broker properly documents what’s requested. That’s paramount in any line of insurance business that it is properly documented. On the other hand, there’s a higher standard of care for advisers—those who provide advice and counsel as to what coverages should be obtained by the client. That specifically applies to agents or brokers who are specialists. Are specialists essentially fiduciaries for the insurance industry? Hitzig: I think it’s a really interesting question, especially as it pertains to the world of MGAs and program administrators. From a regulatory standpoint, a managing general agent is actually a defined business type, of which the majority of programs and MGAs actually are not. They don’t fit the definition from a regulatory standpoint. The vast majority of program administrators and MGAs are actually organized as insurance brokers. That actually complicates, from my perspective, the discussion around fiduciary responsibility. The key to it, from my perspective, is the contractual relationship between the MGA and insurance company which establishes a fiduciary duty from the MGA to the carrier. Ween: To the extent that there is a contractual relationship and there is a legal duty to act without negligence and all, that doesn’t necessarily connote a fiduciary responsibility … where there’s a special relationship, where there is a relationship where the client is relying on you, whether it be the carrier and the MGA or the broker or the agent or broker and the client, that gives rise to a fiduciary duty where there’s a reliance by one party on another due to that relationship and the special expertise or ability that one of the parties has. What are the implications of misrepresentation to a specialist or by a specialist? Mee: I look at this generally from two lenses. The first is a little more qualitative, and that has to do with your reputation for professionalism within the marketplace. The insurance industry simultaneously is very large and very small. Clients will talk. If you are purporting to be an expert within a specific industry class within a specific line of coverage and you consistently failed to deliver the types of results that a specialist should deliver to your client or customer, that’s going to become known very quickly. That can have implications on your business. The second … comes down to the level of the higher professional standards that you can be held to as a specialist—when you talk about education and advice in addition to disclosures you have to make when you’re placing these specialized lines of business on behalf of your customers. Jeremy Hitzig Starfish Specialty Insurance Christopher Mee Aon’s Cyber Solutions Specialty Coverage 42BEST’S REVIEW • NOVEMBER 2022 Are client expectations higher for specialists? Hitzig: Yes, I think so. Let me tackle that question from my vantage point, as an operator of a program specialist. We hold ourselves out as specialists to the industries and in lines and classes of business that we underwrite. As specialists, we develop and tailor coverage, pricing, underwriting guidelines and so forth around the particular risks that we’re ultimately insuring. Cavaness: Anytime that you, again, hold yourself in a high regarded and particular area and they rely on your advice, certainly insurers and customers would naturally hold you more accountable for what they get. We’ve talked a lot about that. Of course, there’s an expectation when there’s a claim that everything should be covered. Realistically, we all know that that’s not the case. There are exclusions on policies that even though something may or may not happen, it’s unfortunate, but you can’t cover everything generally. Mee: When a client is engaging a specialist, they’re looking for more than just the procurement of insurance at their direction. They really are looking for someone to serve that role as a trusted adviser and fill in that knowledge gap that they have in order to address this new and evolving risk, whatever that may be. I absolutely agree. Clients— they have higher expectations and hold specialists to a higher standard and, I think, rightfully so. How do you counsel these specialists? Ween: Aside from telling them not to make any mistakes? The first thing I say in terms of a specialist is don’t oversell or exaggerate your special knowledge or expertise. What’s been said here during our discussion is that there are so many things that are going on in terms of the market, it’s very difficult to make a statement that you know all about an area. There was a recent article I read that particularly pointed out agency websites that had language that appeared to overstate the level of expertise, experience and the scope of knowledge that the agency had. If there’s a claim based on these websites, what’s stated in the website can be very detrimental to the defense of the claim. Second, I would certainly tell the agents or brokers to make sure they’re keeping up to date with respect to what’s in the market, the types of coverages, and what is happening, in terms of claims and disputes with respect to what’s not covered. As an example of something that’s been common over the last couple of years, all of the litigation that has taken place with respect to COVID and communicable diseases, it was a specialized thing. Nobody understood it. Do you think some of the problems could be averted with continuing education in a particular industry segment on the part of a specialist? Cavaness: You have to stay up with the education. You have to stay up with the evolution of the coverages. Stay up with lead insurance companies that are writing this coverage, that you’re able to adequately present the solutions to the customer. I think that always continuing education is certainly a great solution. Since being a specialist carries such responsibility, is being a specialist a burden or is it an honor? Hitzig: I think it’s absolutely an honor. As we talked about earlier, the world is getting evermore complex. The world of insurance has to respond to that. The right response is through specialty and specialization. It’s a great opportunity. I feel it’s an honor to be a specialist, even with the added responsibilities that come with it. BR AM Best TV Visit www.bestreview.com to watch the full lineup of programs in Succeeding in the New Age of Specialty Coverage. Martin Ween Wilson Elser43BEST’S REVIEW • NOVEMBER 2022 Coastal Property Severe Weather in Coastal States Presents Big Challenges in Hardening Homeowners Market While much attention is focused on Florida, storms have wreaked havoc on the property markets in other coastal states, particularly Louisiana, Texas and South Carolina. by Anthony Bellano F or the U.S. homeowners insurance market, it was a perfect storm of catastrophic events. In Louisiana, it began with Tropical Storm Cristobal in June 2020, the first of seven named storms that slammed the state in a two-year span and cost insurers more than $10 billion in losses. Next door, in Texas,a winter storm unofficially known as Uri and the deep freeze of 2021 brought a wide array of significant perils that the state hadn’t seen, perhaps, ever. “That was extraordinary in terms of the length of time it lasted, and the impact that it had on the power grid, the impact that it had from the standpoint of property losses,” AM Best Associate Director David Blades said. “The length of time those lower temperatures persisted caused significant water damage loss from busted pipes and issues.” Recently in September, Hurricane Ian not only caused more than $50 billion in insured losses in Florida but also left roof and structural damage in South Carolina from the wind and downed trees and tree branches, according to the South Carolina Property and Casualty Insurance Guaranty Association. Catastrophe modeler Karen Clark & Co. said it estimates less than $1 billion of insured Anthony Bellano is an associate editor. He can be reached at anthony.bellano@ambest.com. Key Points The Challenges: Louisiana and Texas have high combined ratios after two years of natural disasters, while the insolvencies of several Louisiana and Florida companies are having impacts in states across the region. Proposed Solutions: AM Best Associate Director David Blades says Louisiana and Texas can look to Florida, which has found ways to adapt to the continuing risks associated with severe weather, as an example of how to help lower their combined ratios. Diversification: There is talk of a decreased appetite among reinsurers in the catastrophe market, and analysts say diversification will help alleviate some of the pressure felt in the aftermath of severe storms.Coastal Property 44BEST’S REVIEW • NOVEMBER 2022 losses in the Palmetto State as of early October. Last year, insurers faced more than $5 billion in flood losses related to Hurricane Ida after the storm’s remnants dumped six to nine inches of rain over three hours in New York, New Jersey and surrounding states. Those weather patterns damaged vast coastal areas of the United States, but they also illustrated how the homeowners insurance market in those and other coastal states are facing bigger challenges every year amid an uptick in the frequency and severity of storms, new non-weather risks and a rash of insolvencies. Indeed, after the severe storm pattern that began in 2020, the direct combined ratio for Louisiana’s combined homeowners market rose to 461.86 in 2021, up from 76.98 just two years earlier, according to BestLink. All of the state’s top 49 insurers reported direct combined ratios greater than 100. In 2019, only six companies were in that category. Texas’ overall combined ratio rose to 136.46 in 2021, up from 86.50 one year earlier, according to BestLink. Thirty-nine of the state’s top 49 insurers all had direct combined ratios greater than 100, and only four have combined ratios below 95. In 2020, the majority of the top insurers had direct combined ratios below 100. “The apparent increase in the frequency and severity of the losses there doesn’t make anything easier about the market. Insurers are still ready to play a role. They’re still taking on many risks, but the challenges do seem to be increasing rather than decreasing,” said Jon Schnautz, assistant vice president of state and policy affairs, National Association of Mutual Insurance Companies. Blades, for instance, said all coastal states should brace for tornadoes, which he noted have been shifting south from the Midwest recently. “Before, tornadoes were consistently occurring more often in Nebraska, Oklahoma, Kansas, South Dakota. Now you’re seeing some more of that activity happening in Tennessee, Georgia, Mississippi, Arkansas,” Blades said. “It’s all part of some of the things that we’re seeing that are changing.” Blades suggests that insurers in Louisiana, Texas and other coastal states specifically look to an unlikely source for help: Florida, which reported a collective direct combined ratio of 90.65 in 2021. The Sunshine State has been dealing with new trouble since Hurricane Ian left a path of devastation in September. But in recent years, as Florida has dealt with a wide range of storm patterns, the state has found ways to adapt— particularly through the use of technology—to the continuing risks associated with severe weather. Insolvencies The Louisiana homeowners market has seen seven insurers go insolvent in the state over the last two years: Gulfstream Property & Casualty Insurance Co.; State National Fire Insurance Co.; Access Home Insurance Co.; Americas Insurance Co.; Lighthouse Insurance; Southern Fidelity Insurance Co.; and Weston Property & Casualty Insurance Co. Although those carriers all wrote business in Louisiana, they were not all based in the state, Deputy Commissioner of Public Affairs at the Louisiana Department of Insurance John Ford pointed out. Schnautz noted they were small, regional companies, but ones that “enjoyed some years of relative stability and then, with two really bad years back-to-back, simply didn’t make it.” Twelve companies have withdrawn from the homeowners market but continue to write business “Insurers are still ready to play a role. They’re still taking on many risks, but the challenges do seem to be increasing rather than decreasing.” Jon Schnautz National Association of Mutual Insurance Companies45BEST’S REVIEW • NOVEMBER 2022 in the state. As of Sept. 29, more than 120,000 policies were covered by Louisiana Citizens Property Insurance, the state’s insurer of last resort. This is up from nearly 39,000 last year and 35,700 in 2020, according to Ford. The most recent number would have been higher, had two insurance companies not agreed to take policies from insolvent companies. Centauri Specialty Insurance assumed the policies from Gulfstream, and Safepoint Insurance Co. assumed the policies for Access Home, State National Fire, and Americas. Those homeowners did not lose coverage and didn’t have to find coverage with Louisiana Citizens or elsewhere, Ford said. In Texas, Weston, Lighthouse, Access Home, Gulfstream and American Capital Assurance Corp. have all become insolvent over the last two years, according to the Texas Department of Insurance. Ten other companies stopped writing homeowners insurance but continue to write other lines in the state. As of the end of the second quarter in 2022, the Texas Windstorm Insurance Association, Texas’ insurer of last resort that provides windstorm and hail coverage to those who are unable to obtain insurance from the voluntary insurance market, oversaw more than 197,000 policies, up from 184,890 in 2020. Florida’s homeowners insurers struggle with issues of fraud and insolvency. Schnautz points out that Louisiana and Texas insurers should be cautious of the rampant fraud associated with assignment of benefits in the Sunshine State. “When you have a real disaster occur, those are the conditions in which you would see the potential for abuse of assignment of benefits arise because you have a large pool of valid claims that can be inflated,” Schnautz said. In the last two years, 11 insurers that wrote policies in Florida went insolvent, according to the Florida Insurance Guaranty Association. This included five in 2021, two of which were the result of the current litigation crisis surrounding roofing claims. As of mid-October there were six insolvencies in 2022. As of Sept. 30, Citizens Property Insurance of Florida, the state’s insurer of last resort, reported 1,075,850 policies in force. Before Hurricane Ian, Citizens was growing at a rate of approximately 10,000 policies a week, according to spokesman Michael Peltier. Some—such as United Property & Casualty Insurance Co.—have not gone insolvent but have entered into run-off. United P&C made the decision to leave the market in Louisiana, Florida, Texas and New York. Insolvencies in states such as Florida and Louisiana impact markets in nearby states. South Carolina has seen six insolvencies in the last two years, all involving companies based in Florida and Louisiana, according to the South Carolina Guaranty Association. Of the 13 insolvencies reported by Georgia regulators, only one carrier was domiciled in that state. Lasting impacts on the South Carolina market from Hurricane Ian will likely stem from Florida insurers that do business in both states, industry experts said. “The industry is well-positioned to handle losses in S.C.,” South Carolina Insurance Association State Allied Member Russ Dubisky said. “However, if losses in Florida impair carriers that also do business in South Carolina, there could be some impact on the market.” “It should be noted that those insurers there that are geographically concentrated, particularly along the coast, will need to demonstrate effective risk management in handling this event,” AM Best Senior Director Richard Attanasio said. “And those companies that have exposure to Hurricane Ian in both Florida and South Carolina will need to consider the aggregation of losses.” Blades said Louisiana’s governor has focused on things related to improving the homeowners market. In that regard, Louisiana has already begun to follow Florida’s lead, according to Ford. Two bills passed in the recent legislative session were modeled after Florida laws. Act 69 raises the minimum capital and surplus requirement for property/casualty insurance companies operating in Louisiana from the current $3 million to $5 million by 2026, and to $10 million by 2031 for existing companies. Act 434 requires insurers to cover additional living expenses related to all actions of a civil authority, regardless of whether an emergency declaration was declared. Previously, the emergency declaration was required to provide coverage. Reinsurers Shifting Focus Some reinsurers have taken the stance that they want to step back in certain states in certain areas, and by doing that, “that’s making the primary Coastal Property 46BEST’S REVIEW • NOVEMBER 2022 companies have to reassess what risks they can write, and how they can write them,” Blades said. “They have to reassess the kind of risks they have in their portfolio, what they can do to provide the requested coverage—some of the insurers are having to do a lot of work a lot earlier to prepare their insureds for different coverage provisions and higher deductibles.” At the annual Rendez-Vous de Septembre conference held recently in Monte Carlo, many reinsurers spoke about moving away from catastrophe risk and into other markets. Carsten Prussog, president for Specialty Markets, Munich Re America, told AM Best TV, “We have experienced this in the midyear renewals already that some of the competitors have pulled back.” “At Munich Re, we have materially reduced our proportional property reinsurance footprint over the last 24 months with clients whose portfolios are concentrated in the South, especially in the Gulf states, including Florida, Louisiana and Texas,” said Michael Quigley, executive vice president and head of property underwriting & multiline risk quantification for Munich Re U.S. “With that said, Munich Re still takes on significant risk in these states but has been more strategic in the clients and reinsurance structures it supports given the current economic environment and our view of natural catastrophe risk.” Schnautz didn’t speak to the specific reinsurance market, but he did say that insurers and reinsurers alike need to put more emphasis on a diversified portfolio. “One of the challenges in all these states with coastal risks is insurers have to be careful about their concentration of exposure to that risk,” Schnautz said. “If the wrong storm hits at the wrong place and you’re not sufficiently diversified across different areas, you can face obvious problems.” Louisiana Insurance Commissioner Jim Donelon recently told Louisiana lawmakers he wants $20 million that normally flows through his department to the state General Fund to stay in his budget to use in a property insurer incentive program. He told Best’s Review he’s confident that the plan will help incentivize companies to write more in Louisiana or to do business there. The companies would be required to take out some policies from Louisiana Citizens, and Donelon expects that will happen before the end of the year. Michael Wise, acting director of the South Carolina Department of Insurance, indicated the state has seen some tightening of the reinsurance market, but said he believes it is equipped to handle the continuing fallout from Ian. “While we have observed some tightening in the reinsurance market, it continues to offer adequate capacity for carriers writing property coverage in South Carolina,” Wise said. Better Tools and Maps Blades said Florida has been adapting to storm risk since at least 1992, when the market was transformed by Hurricane Andrew. In 2004, Florida experienced four hurricanes in six weeks. Because it has dealt with that continuing risk, many Sunshine State insurers have focused on better mapping and use of technological tools, Blades said. “The successful Florida insurers have put much more into updated maps, aerial tools and things of that nature,” Blades said. “What’s happened the last couple of years in Louisiana and Texas has been related to specific incidents. Hopefully it’s now going to get insurers to look at some of the things they might need to do to protect themselves going forward.” The technological tools insurers in the Sunshine Munich Re has developed its “own view of risk and modeling to account for the observed shifts in severe convective storm losses.” Michael Quigley Munich Re U.S.47BEST’S REVIEW • NOVEMBER 2022 State have been using have made a difference “not just from an underwriting standpoint, but also from a claims service perspective,” Blades said. “Better use of technology can also help from an expense perspective. Being able to attack underwriting results from both sides, from a loss perspective with better risk selection and also from the underwriting expense perspective,” Blades said. Quigley said Munich Re has developed its “own view of risk and modeling to account for the observed shifts in severe convective storm losses, especially those seen over the last decade as exposures have grown in the South due to population migration patterns.” “We would support insurers being able to use a wide range of predictive modeling on the front end,” Schnautz said. “States are going to restrict that in different ways in terms of what they’ll allow, but the intention here on the industry’s part is to try to understand risk better using the best technology possible. In general terms, we absolutely support that.” BR Insurance Leaders: Time to Better Protect, Shore Up Coastal Homeowners’ Properties I nsurance leaders say federal, state and local governments need to better protect coastal homeowners from severe weather by making sure their homes are built properly and safeguarded correctly—particularly against floods. In Louisiana and Texas, the biggest long-term issue is the lack of strong building codes and the enforcement of such codes, said Michael Quigley, executive vice president and head of property underwriting & multiline risk quantification, Munich Re U.S. “Whereas Florida is the poster child for strong building codes, Texas, for example, has no statewide building codes,” he said. Jon Schnautz, assistant vice president of state and policy affairs, National Association of Mutual Insurance Companies, said NAMIC has tried to push enhanced building codes in many states and “better thought processes into where development occurs in risky areas,” as well as tax credits. He also cited inflation as a troubling factor for protecting and rebuilding in these coastal states since it impacts the costs of building supplies and repairs. Schnautz and Quigley both said Florida’s problems with fraud don’t make it a model homeowners market, but there are other things insurers can take from the Sunshine State. “The few positives about Florida from a property insurance perspective are the strong building codes and relative quality of the built environment,” Quigley said. “All coastal states should focus on strengthening their built environment and increasing community and economic resiliency by promoting mitigation efforts and appropriate land use and by mandating and enforcing stronger building codes that can address the impacts of a changing climate.” Insureds were given a victory at the federal level in September when the U.S. House of Representatives passed a stopgap spending bill that includes an extension of the National Flood Insurance Program. The Biden administration’s proposals for reform include ending coverage for properties that see repeated flooding. AM Best Senior Financial Analyst Anthony Molinaro said that since 5 million Americans nationwide rely on the NFIP each year to protect their homes and businesses, an extension was necessary. “For many of the coastal properties, private insurers cannot compete with the rates offered by NFIP,” Molinaro said. “These properties are also considered the most vulnerable. So the long-term solution is still unclear at this point, which is why the U.S. government continues to kick the can down the road every 12 months. But what is clear is that we still need a market to protect these risks and the NFIP is it right now.” Molinaro said ending coverage for properties that are repeated flood risks would create a protection gap, as homeowners and mortgage holders alike would face an availability and affordability issue. “Perhaps one way around this could be for the NFIP to require any properties having repetitive claims to mitigate using some form of federal funding and no-interest loans or sell these properties to the government at fair market value. Unfortunately, some of these properties are in low-income communities where affordability is the issue.”Next >